Monday, January 14, 2008
Interesting Stocks
Looking at things from a value perspective, there are several interesting stocks. This is actually a particularly tricky time since P/E’s are coming down pretty quickly and book values are increasing. The challenge is to separate the proverbial wheat from the chaff. Some criteria being considered here include: (1) a straightforward business preferably with a repeat purchase model, (2) a stable business, (3) decent balance sheet, (4) top notch management team, and (5) industry leadership. Without getting into too much arcane language on intrinsic value and obscure techniques on valuation, the goal is to use a common sense approach while being selective.
Subscribe to:
Post Comments (Atom)
2 comments:
I would like to bring to everybody's attention that is a big fan of value investing. Their is one overwhelming fact when it comes to value investing and that is you must buy decent companies with very low price to sales ratios to have a high probability of making a lot of money buying value stocks their is no other way believe me. And what is a very low price to sales ratio. First let me explain very clearly to everyone what a low price to sales ratio is. The price to sales ratio is the market cap of a stock compared to the sales that the company of the stock does on a annual basis. In other words the company I talk about below has a market cap' which is all the shares of the company issued and outstanding of just eight billion dollars. But the comapny does fiftyfive billion dollars in annual sales. In other words the market is valuing bunge at just eight billion dollars but the company does fiftyfive billion dollars in annual sales get the idea. Ok one other thing never forget this warren buffett could never have made the enormous returns buying value stocks unless he was buying value stocks with very low price to sales ratios period' and I am almost certain if you asked him he would totally agree. Bear in mind I would not say something that I cannot back up believe me. I will give an example of a company of really decent quality that I consider really undervalued. The company is Bunge Limited symbol {BG} engages in the agriculture and food businesses worldwide. The stock currently trades around 59 dollars a share. I think the stock could easily get to 450 dollars a share over the next five years. Yes you heard it right four hundred and fifty dollars a share. Assuming their are not stock splits. And what do I base this on If the companies profit margain expands from around 1.75% to 4% over the next five years and if the sales of the company expand from 54 billion to 85 billion thats growth of about 7 or 8 percent a year and if the companies stock than trades at a price earnings ratio of about 20. That would put the price of the stock at 450 dollars a share. It could even be more than 450 dollars a share if you reinvest your dividends the company pays a dividend also if the company does a share buyback this could increase the value of the stock even more. Keep in mind that their are stocks that are popular that trade at much higher price earnings ratios than 20 times earnings one example is whole foods market it currently trades at 35 times earnings. Also keep in mind that bunge is a company of really decent quality not at all a high risk stock. It has the potential to leave a company like Mcdonald's in the dust. I understand your skepticsm if you are reading this but go to any stock broker or financial planner CPA that knows how to value stocks and they will confirm everything that Im saying here.
Its really hard to pick a great stock.
Post a Comment